2018 Year-End Review: Part One: In re Olson

Part one of our 2018 asset protection year-end review begins with the case of In re Olson. This case is yet another reminder that it is critically important to engage in asset protection planning before you have a creditor problem.

The decision comes to us from a U.S. District Bankruptcy Court in California. Olson was married to a NASA engineer who formed a startup company that sought to specialize in surveying for oil using an airplane and other specialized technology. The startup received hundreds of millions of dollars in investor capital, but when the price of oil collapsed, so too did the company. As a result of the collapse, Olson was served with a lawsuit from a creditor. After being served, she transferred $4.6 million in assets into a Cook Islands trust.

The creditor received a judgment for $6 million against Olson, and after years of legal maneuvering, Olson declared bankruptcy. She then directed the Cook Islands Trustee to change the name of the trust and reported to the Bankruptcy Court that the trust under its old name did not exist and had no assets. After the Bankruptcy Court ordered she repatriate the assets, Olson used specific language to signal to the Cook Islands Trustee she was under duress when she requested the Trustee repatriate the assets. When the Bankruptcy Court found out about this, the Court found her in contempt and sentenced her to jail.

However, Olson held out. She remained in federal jail as weeks turned into months and months turned into a year. Sensing a stalemate, the bankruptcy trustee struck a deal with Olson: repatriate the assets, and the trustee would allow 20% (about $960,000) to go to Olson’s children and the remainder would go to the creditor. The Bankruptcy Court approved the deal, but as one might imagine, the Creditor was less than pleased with almost $1 million dollars going to Olson’s children. The Creditor appealed the decision to the federal District Court.

The District Court reversed the bankruptcy court’s approval of the deal. The District Court attacked the Bankruptcy Court’s reasoning and held that the Bankruptcy Court “clearly believed it had some equitable duty to approve the settlement after Olson relied on the deal and repatriated the assets.” The District Court held that the bankruptcy court failed its fundamental duty of being independent.

In looking at the case, a number of issues jump out. But paramount among them is one of timing, which we talk about again and again in asset protection planning. Olson waited until after being served with the creditor lawsuit to fund the Cook Islands trust, and as a result her transfer to the trust was clearly fraudulent. If she had transferred the assets prior to undertaking the startup, the creditor would have had much less ammunition to attack the transfer. But when the transfer of assets is made to a Cook Islands trust after notice of a lawsuit, one should expect to either repatriate assets or be held in contempt.